Hoard's Dairyman: Position and price determine by-product feed values

Position and price determine by-product feed values

by Michael F. HutjensThe author is an extension dairy specialist at the University of Illinois, Champaign-Urbana.

By-product feeds (also referred to as co-product feeds) are produced during the production and manufacturing of human and industry products (such as sugar, ethanol, starch, or oil). These dairy feeds can be more valuable than the original feed in some cases (such as corn distillers grains). One strategy is to apply the 2P principle . . . position and pricing.

Positioning refers to determining how a by-product feed would fit in rations on your farm. If your current ration does not need the nutrients in a by-product feed, don’t consider it. Categories are listed below with example by-product feeds that could fit in each group.

A by-product feed may fit in more than one position. Each of you must determine if an opportunity exists in your situation. For example, a ration high in corn silage could benefit from by-product feeds that could provide functional fiber (depending on particle size of the corn silage), additional protein (both soluble protein and RUP high in lysine), rumen fermentable fiber (low in starch), and a supplemental source of oil/fat (depending on production level of the herd). In the grass or small grain forage-based ration, adding RUP sources, rumen fermentable carbohydrates, and fat/oil could be the optimal positioning of by-product feeds. One Illinois ration approach with higher levels of corn silage using by-product feeds could include 4 to 5 pounds of fuzzy cottonseed, 2 to 5 pounds of soy hulls, and 2 pounds of heat-treated soy product. Your nutritionist should use a computer rumen model program (such as the 2001 Dairy NRC model, AminoCow, or CPM model) to evaluate amino acid balance, dry matter intake factors, and energy discounts.

Pricing by-product feeds
Once you have determined that you have an opportunity to use a by-product feed (positions properly), the next question is whether the feed is favorably priced. Software programs can answer this question by determining the value of nutrients in the by-product feed using reference feeds.

“Feed Val” spreadsheets have been developed by the University of Wisconsin. The approach is to calculate a value of nutrients using base feeds and determine the value of nutrients in the by-product feed. Tables 1 and 2 used Feed Val 3 which focuses on corn (energy source), soybean meal (RUP source), tallow (oil or fat source), dicalcium phosphate (phosphorous), and limestone (calcium).

“Sesame” is another program developed by the Ohio State University that considers several reference feeds in the area and calculates an economic value for the by-product feed.
When determining the economic value of a by-product feed, consider the following points to be sure the feed is a good value.

• Adjust the breakeven price of the by-product feed for storage losses, shrink, and handling losses. Storage losses can be significant for wet by-product feeds (seepage of water from the delivered feed, mold that must be discarded, and dry matter losses due to fermentation). Shrink includes feed that is blown away, consumed by birds or rodents, contaminated by mud or manure, or spilled.

• Determine if the price is for semi-load quantities that must be paid for when the feed is dropped.
• Ask if the price is delivered to the farm or at the site of production (fob).
• Also consider whether you can use a trailer that dumps or whether you need a truck with a walking bottom to fit your storage area.

Consider usage
Herd size will have an impact on whether you can use by-product feeds after determining it can be positioned and priced correctly. The minimum level of a feed or blend that can be successfully mixed in a TMR is 2 pounds with 5 to 8 pounds optimal. Here are two approaches:

First, buying semi-load quantities of individual by-product feeds can be feasible on larger farms because it can be fed up in a timely period (less than 60 days). Vertical storage bins with augers can improve mixing accuracy and minimize shrink losses. Inside storage also reduces shrink loss and adds convenience for the feeder. Outside flat storage protected from the weather and wind losses should be considered to minimize shrink.

Second, consider buying a commercial blend of by-products along with mineral and vitamins and protein sources because semi-load quantities are difficult to store and pay for immediately when delivered for smaller herds. Larger herds also find this approach appealing IF the company or cooperative is willing to price the blended feed competitively. This approach can be a win-win situation for both parties.

Ask these questions
Cornell workers developed a list of questions that you should consider when deciding if using by-product feeds are “good” choices for your farm.
1. What guarantees of quality and composition will be provided for the feed from the supplier?
2. What range in nutrient value can be expected?
3. What additional supplements will be needed, and how will smaller packages be handled and mixed in?
4. Is adequate storage available on the farm?
5. Will a continuous supply of this feed be available?
6. Can I contract or lock in a year- long supply of the feed?
7. Does the farm have mixing, weighing, and handling equipment to accurately use this feed?
8. Who will formulate the ration?
9. How long can the feed be stored on the farm while still maintaining quality?
10. Should vertical, horizontal, indoor, or outside storage be considered?
11. Will additional labor or management time be needed?
12. If a quality issue occurs, who do I talk to, and how will it be addressed?
13. Who will be testing the feed for nutrient content?
14. Will someone inspect the feed before it arrives on the farm?
15. How much shrink can I expect, and how much value should be discounted?

Nutrient variation can occur with a by-product feed based on the level of nutrients in the feed ingredient, processing plant, and processing method. Table 3 lists the nutrient composition of selected by-product feeds. An important question is how does the nutritionist build in and adjust for variation. One approach is to guard against a nutrient shortage that could reduce milk production (for example, using one standard deviation below the average protein content). A second consideration is to guard against a nutrient that could cause rumen health problems (for example, one standard deviation about the average oil content).